Recently Federal District Court Judge Jed Rackoff rejected the $285 million settlement that Citibank had negotiated with the SEC over $1 billion in mortgage securities fraud that would also have exonerated the bank of guilt. The SEC acceptance of “neither admit nor deny” language that has been considered “boilerplate” in these settlements has now been, not only rejected by the courts, but dropped by the SEC in securities fraud cases:
The Securities and Exchange Commission, in a fundamental policy shift, said Friday that it would no longer allow defendants to say they neither admit nor deny civil fraud or insider trading charges when, at the same time, they admit to or have been convicted of criminal violations.
The change is the first time that the S.E.C. has stepped back from its longstanding practice of allowing companies to settle fraud charges by paying a fine without admitting wrongdoing. The new policy will also apply to cases where a company or an individual enters an agreement with criminal authorities to defer prosecution or to not be prosecuted as part of a settlement.
Robert Khuzami, the director of enforcement at the S.E.C., said the agency would continue to use the “neither admit nor deny” settlement process when the agency alone reached a deal with a company in a case of civil securities law violations. Those types of cases make up a large majority of S.E.C. settlements.
As David Dayen at FDL so rightly notes, “This is a first step to stopping this travesty of allowing companies to get off the hook and pay their way out of fraud violations without even admitting they did anything wrong. And this never happens without the work of Jed Rakoff.”